7(a) Loan Guaranty Program

Definition:The most basic and most popular of the SBA's loan programs. Its name comes from section 7(a) of the Small Business Act, which authorizes the agency to provide business loans to American small businesses.

The SBA doesn't lend money itself but rather, provides loan
guarantees of up to $1 million or 75 percent of the total loan
amount, whichever is less. For loans that are less than $150,000,
the maximum guarantee is 85 percent of the total loan amount. For
loans of less than $100,000, the guarantee usually tops out at 80
percent of the total loan. A 7(a) loan can be used for many
business purposes, including real estate or equipment purchases,
expansion, working capital or inventory. The money can be paid back
over as many as 25 years for real estate and 10 years for working
capital. Interest rates are a maximum of 2.75 percent if over seven
years.

SBA policy prohibits lenders from charging many of the usual
fees associated with commercial loans. Still, you can expect to pay
a one-time guarantee fee, which the agency charges the lender and
allows the lender to pass on to you.